How to Wholesale Real Estate: A Beginner's Guide
So, what exactly is “real estate wholesaling”? How does it work, and what does a “real estate wholesaler” even really do?
Wholesaling can be an excellent way to get started with real estate investing and can be done with little to no money down. Simply put, with wholesaling real estate, you can pocket sizeable profits and quickly build your real estate bottom line by (i) finding distressed properties and then (ii) quickly reselling the same day, or simply assigning the contracts to buyers.
The fact is the wholesale real estate deal has become a key piece of the dealmaker's puzzle for large segments of active real estate investors in the arena. An increasingly large segment of investors is often even focusing most of their real estate deal-making efforts on wholesaling properties, often building their entire career around it and achieving extremely high incomes in the process.
Having said that, it's not unusual for newcomers or more traditional real estate professionals to be somewhat “fuzzy” or even entirely unfamiliar with the concept of wholesaling real estate.
So, if that's you, then today's your lucky day. ッ
It's time to quickly clear things up for you, so you can understand exactly what it means to wholesale a property, who would want to and why, and the basic pros & cons of it all, concisely summarized for you below. ⇊
When you finish this “Cliff's Notes”, you'll be in a much better place to understand the unique opportunity in wholesaling real estate and know if it’s a great fit for you.
So, What Is Real Estate Wholesaling?
Real estate wholesaling is the process of finding a motivated seller who is willing to sell their property below market value, and then quickly reselling or assigning that contract to a buyer who is willing to pay a higher price for the property for an assignment fee to step into your shoes.
The difference between the price the seller is willing to accept and the price the buyer is willing to pay is the wholesaler's profit = your profit.
Quick Sidebar: Using an assignment contract for a wholesale deal is different than what is called “double closing” or “simultaneous closing” a wholesale deal. Both are viable, time-tested “exit strategies” for wholesaling real estate, and the method a wholesaler uses will depend on various factors a bit outside the scope of this article.
After reading this piece, feel free to check out this helpful article for a more thorough understanding of both strategies…
Wholesaling is a popular strategy for real estate investors who are just starting out, because it requires little to no money down and can be done relatively quickly.
But! It's important to note that wholesaling is not without its risks.
For example, if you're unable to find a buyer for the property, you may be stuck with it.
What Does a Wholesaler Do?
A wholesaler is essentially a middleperson between a motivated seller and a buyer.
Their job is to find distressed properties that can be bought below market value, and then quickly assign the contract to a buyer. The wholesaler makes a profit by charging an assignment fee, which is the difference between the purchase price and the sale price of the property.
To be successful as a wholesaler, you need to have a solid understanding of the real estate market in your target area(s) — whether it’s your backyard or a remote market — as well as a network of buyers who are interested in purchasing distressed properties.
One of the key mistakes most new wholesalers make is the assumption that they can only do deals in the market they live in. Not so!
See, we’ve wholesaled many properties in many different markets across the U.S., and we’re closely associated with an ocean of investors who wholesale houses outside of their home market territory — remote or virtual wholesaling.
If you really want a deep dive into the virtual wholesaling process, we strongly recommend you consider learning from the genius Cameron Dunlap in his One Day Flip training program.
You also need to be able to negotiate effectively with both sellers and buyers and have a solid understanding of the legal requirements and processes involved in real estate transactions.
How to Find Distressed Properties to Wholesale
Finding distressed properties to wholesale can be challenging, but with the right approach, you can find great deals.
Here are some tips to get started:
- Driving for Dollars: Drive around neighborhoods looking for run-down properties, overgrown lawns, boarded-up windows, and other signs of neglect. You can then use public records to find the owners of these properties and reach out to them to see if they are interested in selling.
- Direct Mail Campaigns: Create a list of potential sellers based on criteria such as absentee owners, properties that have been on the market for a long time, and owners in pre-foreclosure. (There are lots more lists, but that’s just a sample of some of your list options.) Then send them a personalized letter or postcard to see if they are interested in selling.
- Online Listings: Think Craigslist or Zillow. Look for properties that have been on the market for a long time, are priced below market value, or have other signs of distress. Reach out to the seller and assess their motivation level to see if they are interested in selling.
- Networking: Attend local real estate investor meetings, join real estate investing groups on social media, and network with other investors in your area. Often, investors will have properties that they are looking to wholesale and may be willing to partner with you on a deal.
- Work with Real Estate Agents/Realtors: Agents and Realtors can be valuable resources for finding distressed properties. Let them know that you're interested in purchasing distressed properties and ask them to reach out to you with potential deals.
Once you've found a distressed property that you're interested in wholesaling, it's important to thoroughly inspect the property to identify any potential issues. Either you need to handle this or someone else needs to be your eyes and boots on the ground, if it’s in a remote market. You don’t have to do it, but someone needs to get ‘er done.
Some common issues to look for include:
- Structural damage: Check for any cracks in the foundation, walls, or ceiling, as well as any sloping or sagging floors. These issues can be expensive to repair and may affect the value of the property.
- Electrical & plumbing problems: Make sure that the property's electrical and plumbing systems are up to code and functioning properly. These issues can also be costly to fix and may affect the property's value.
- Pest infestations: Look for signs of termites, rodents, or other pests that can cause damage to the property. If you find evidence of a pest infestation, it's important to address it before wholesaling the property.
- Environmental hazards: Check for any environmental hazards, such as lead paint, asbestos, or mold. These hazards can be dangerous to occupants and can also be expensive to remediate.
Once you've thoroughly inspected the property and identified any potential issues, you can estimate the property's repair costs and determine a fair market value. This will help you determine the maximum amount you can pay for the property while still making a profit when you assign the contract to a buyer.
Right now there are over 2.3 million pre-foreclosures just waiting to be flipped in ONE day with our unique system. Best of all, you won't need cash, credit or risk to get started. Just follow these 3 simple steps.
Negotiating the Purchase Price
Once you've determined a fair market value for the property, it's time to negotiate with the seller to purchase the property at a discounted price.
Keep in mind that the seller is motivated to sell quickly, so you may be able to negotiate a lower purchase price than what the seller originally listed the property for.
When negotiating with the seller, it's important to explain that you’re interested in purchasing the property as a real estate investment and are willing (and able) to close quickly if needed — or ideally on whatever timetable is best for the seller. Many newer investors mistakenly assume sellers are always highly interested in a fast sale, but sometimes what a motivated seller needs most is flexibility with their timeframe.
Ultimately make a fair offer based on the property's condition and repair costs and be prepared to explain your reasoning for the offer. Keep in mind that an offer that’s fair for both you and the seller means (i) an offer that solves their biggest problem, even if it's lower than they want, and (ii) an offer with a good profit margin built in for you, the real estate wholesaler.
You probably won’t be able to offer them as high a price as they hope, but ultimately you’ve got to profit on deals like this, or you won’t stay in operations or be able to help motivated sellers out of the precarious places they find themselves motivated by.
Do your best to aim for win/win as much as possible with your offers.
If the seller accepts your offer, you can sign a purchase agreement and put down a deposit to secure the property. It doesn’t have to be much — contrary to popular belief, even $100 is plenty to secure the property.
The purchase agreement should include a reasonable contingency — try for at least 30 days, if possible — to protect you in case the property has any hidden issues or you are unable to secure financing.
Marketing the Property to Buyers
Once you have the property under contract, it's time to start marketing it to potential buyers. You can do this by:
- Posting the property on online listing platforms such as Zillow, Facebook, Realtor.com, or Craigslist.
- Networking with other real estate investors who may be interested in purchasing the property — try your local REIA (Real Estate Investors Association) and local wholesaler, rehabber, or landlord FB groups are great places to find these investor-buyers.
- If you’ve networked with other real estate investors in your target market (landlord and fix-and-flip investors), then you’ve hopefully built some sort of “buyers list” of interested parties eager and willing to hear about wholesale deals like this from you whenever they come up — a well-built & cultivated “Rolodex” of active, seasoned buyers is an immense asset to any wholesaler — especially buyers have easy access to investment capital/cash.
When marketing the property, it's important to highlight its potential and emphasize its unique features.
You should also be transparent about any known issues or necessary repairs, as this can build trust with potential buyers.
Assigning the Contract to a Buyer
When you find a buyer who is interested in purchasing the property, you can assign the contract to them for a fee. This fee is typically a percentage of the purchase price, and is paid by the buyer at closing.
To assign the contract, you will need to prepare an assignment agreement that transfers your rights and obligations under the purchase agreement to the buyer. The assignment agreement should include the original purchase price, the assignment fee, and any other relevant terms and conditions.
Once the assignment agreement is signed by both parties, you can close the transaction and collect your assignment fee.
Ultimately wholesaling houses for quick cash can be a great way to launch quickly into real estate investing — even if you don't have a lot of cash to get started.
Wholesaling properties is a success accelerator for beginners in real estate, and a profit engine for those who choose to focus on it full-time and build their entire business operations on it.
By simply (i) finding distressed properties and then (ii) quickly assigning the contracts to buyers, you can build a sizeable income stream very quickly, and accelerate building your real estate enterprise, even if you ultimately end up investing with different strategies.
Hopefully, now you’re in a much better place to understand the unique opportunity wholesaling offers you and to know when and if it’s a good fit for you.
Got any follow-up comments or questions? We’d LOVE to hear from you below.
FAQs: Top 10 for Wholesaling Real Estate…
Hey! Check out these concise answers to the top 10 most frequently asked questions we hear from newbies about wholesaling houses: